Sample — Master Trader Plan for the Week 6-19-17

HAPPY FATHER'S DAY to all the proud fathers out there!

Broader markets are choppy and don’t look bad overall, but it’s a minefield out there in some sectors and individual stocks. The news of Amazon buying Whole Foods Market sent grocery stores and discount stores into a tailspin.

Among the worst hit was The Kroger Company (KR) down almost 28% for the week. Walmart stores (WMT) was down just over 5%, Target Corp. (TGT) was down just over 7 ½% and Costco Wholesale (COST) was down just over 7% for the week.

There are many more that are down more or less than those mentioned, but the bodies (stocks) are scattered through all ends of the retail sector. The S&P Retail ETF symbol XRT was only down just over 2 ½% on the week, but it did break down through the recent support that it was building.

The XRT Retail ETF is a widely diversified group of retail stocks from different sub-sectors. Being down only 2 1/2 % is an example of diversification saving one’s portfolio from the harm of being concentrated. Of course, it caps the gains as well.

Besides Whole Foods Market (WFM) that was up almost 30% on the news, JCPenney (JCP) was up just over 3%, but the chart pattern is nothing of interest.

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On the other hand, Wayfair (W) is in a strong uptrend and making new all-time highs.

WAYFAIR (W)

 

DOW JONES INDUSTRIAL AVG.

 

Above is the chart of the Dow Jones Industrial Average that we review each week. As and often does, the Dow will mask whatever underlying devastation may be happening in a sector or sub-sector of the market. Based on Friday’s close — just a fraction from the high of the day — it looks like a move over 21,400 is insight and maybe even 21,500.

What’s going to drive it there?

EXXON (XOM), CHEVRON (CHV), GOLDMAN SACHS(GS), JPMORGAN (JPM)

 

 

Well, energy stocks led the way on Friday. The S&P energy ETF symbol XLE was up just over 1 ½% and Chevron (CVX) and Exxon (XOM) were the leaders in the Dow on Friday. As a reader of the Monday letters, you know that the energy sector has been a downtrend for quite some time. Maybe this sector is ready to start a bottoming process. We will be keeping an eye on it of course.

Goldman Sachs (GS) and J.P. Morgan (JPM) should help if they can get over the recent highs. Financials are now in favor with Citigroup (C) leading the way, so they should.

BROADER MARKETS

 

 

TREND MATRIX

 

 

 

Some Earnings Reporting This Week

 

There are a few stocks of interest reporting earnings this week. FDX recently broke-out and is being a big help to the Transportation Index. ADBE has been very strong, but did get hit in the Tech drop. LEN recently cleared resistance and helped the Home Building sector do so as well.

New Trade Ideas

Below is a daily chart of RH (RH), $52.45.

Trade:   Under $51.28, consider shorting Jul (7/21) $55/65 bear call spread (32 DTE) for mid-point (currently $1.60/share).

Technical Setup:   Sell setup, Topping Tail, and reversal bar into Minor Resistance after Pro Gap down.

Option Strategy:   Bear Call Credit Spread (BCS). Defined risk strategy where you make maximum profit (net credit received) if the stock closes below the short call strike at expiration.  We sell call strike price above resistance where the pattern suggests that the stock will not close above at expiry, and simultaneously purchase higher strike call than the one sold as a hedge and to reduce margin.

The return on investment (ROI) is the credit received divided by the maximum loss (i.e., width of strike prices less premium received).  The break-even is the short strike price plus credit received (i.e., also your cost basis if assigned the stock).

Considered a mildly bearish strategy since we are not buying puts (or shorting stock) and just calling a short-term top in the pattern.  Trade has positive theta (meaning you make money on time decay) making it a high probability trade since we time entry with the technical pattern.

Max Gain on Call Spread:  Credit received.  Cost basis if assigned is lower strike plus Credit.

Stop Loss:  $55.22.

 

ABOVE is a daily chart of Wayfair Inc. (W), $76.17.

Trade:   Over $76.54, consider shorting July (7/21) $65/55 bull put spread (33 DTE) at mid-point (closed at $.85/share).

Technical Setup:   Continuation breakout daily with strong uptrend all time frames, great relative strength to market and sector.

Option Strategy:   Bull Put Credit Spread (BPS). Defined risk strategy where you make maximum profit (net credit received) if the stock closes above the short put strike at expiration.  We sell put strike price below support where the pattern suggests that the stock will not close under at expiry, and simultaneously purchase lower strike put than the one sold as a hedge and to reduce margin.

The return on investment (ROI) is the credit received divided by the maximum loss (i.e., width of strike prices less premium received).  The break-even is the higher strike price less credit received (i.e., also your cost basis if assigned the stock).

Considered a mildly bullish strategy since we are not buying calls or stock and just calling a short-term bottom in the pattern.  Trade has positive theta (meaning you make money on time decay) making it a high probability trade since we time entry with the technical pattern.

Max Gain:  Credit received.  Cost basis if assigned is higher strike minus Credit.

Stop Loss:  $69.88.

Below is a daily chart of Citigroup Inc. (C), $63.89.

Trade:

C – Over $63.50, consider (a) buying the stock for swing trade; and (b) shorting July (7/21) $62.5/57.5 bull put spread (33 DTE) at mid-point (closed at $.79/share).  Stop Loss:  $63.18.

Technical Setup:   Pullback daily after breakout all time frames, relative strength to market and sector.

Option Strategy:   Bull Put Credit Spread (BPS). Defined risk strategy where you make maximum profit (net credit received) if the stock closes above the short put strike at expiration.  We sell put strike price below support where the pattern suggests that the stock will not close under at expiry, and simultaneously purchase lower strike put than the one sold as a hedge and to reduce margin.

The return on investment (ROI) is the credit received divided by the maximum loss (i.e., width of strike prices less premium received).  The break-even is the higher strike price less credit received (i.e., also your cost basis if assigned the stock).

Considered a mildly bullish strategy since we are not buying calls or stock and just calling a short-term bottom in the pattern.  Trade has positive theta (meaning you make money on time decay) making it a high probability trade since we time entry with the technical pattern.

Max Gain:  Credit received.  Cost basis if assigned is higher strike minus Credit.

Stop Loss:  $63.18.

 

Below is a daily chart of Costco Wholesale Corporation (COST), $167.11.

Trade:    Consider selling the following Iron Condor:  sell Jul (7/21) 180/185 bear call spread and sell Jul (7/21) 155/150 bull put spread (33 Days to Expiration (DTE)) for a limit of $.70/share.

Technical Setup:   Predicting range bound action after Friday’s bearish gap on +Vol.

Option Strategy:   Iron Condor (IC).  Simply, is selling both an out-of-the-money Call Spread and an OTM Put Spread.   Defined risk strategy used when you expect a stock to stay range bound by expiration.  You make maximum profit (net credit received) if the stock closes between the short strikes at expiration.

The return on investment (ROI) is the credit received divided by the maximum loss (i.e., width of strike prices of the largest spread less total premium received).  The break-evens are the short put strike price less credit received and the short call strike price plus credit received (i.e., also your cost basis if assigned the stock).

Considered a neutral strategy since we are expecting range bound activity.  Trade has positive theta (meaning you make money on time decay) making it a high probability trade since we time entry with the technical pattern.

Max Gain:  Credit received.

Stop Loss:  None for now, will update as needed.

NOTE:  Please see Master Trader Guidelines for Trading the Open and Gaps in Member’s Area for rules on trade entry, gaps, etc.

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Happy trading!  If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com

All the best,

Greg Capra
Managing Director and Pristine Founder

Dan Gibby
Chief Options Strategist

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NOTE:  Master Trader will show all trades assuming a 1,000 position for stock, or a 10-lot for options (which represent 1,000 shares of the underlying).  However, this is not a recommendation on proper share size for your particular trading style, risk tolerance, or account balance.  We urge you to calculate your own share size based on your individualized risk parameters, Trading Plan, and familiarity with the proposed trade.

NOTE:  Master Trader and its representatives might have existing positions in these and other trade recommendations before or after suggested herein.  Additionally, we often manage them differently for internal purposes based on different risk parameters than noted herein.